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High-Roof Vans Causing OTD Delays

Railroad backlogs have impacted ship-thru units requiring upfitted equipment. Typically, bodies are ordered, but the chassis are delayed, which creates a domino effect where upfitters won’t produce additional bodies until the chassis arrive. These delays shift one fleet’s production into another fleet’s reserved schedule. As a result, body production gets out of sync with chassis delivery, meaning fleets have a depreciating chassis sitting at an upfitter, which is unusable. These were some of the issues surrounding MY-2015 order-to-delivery (OTD), which, in many ways, are very similar to those encountered in MY-2014.

Although the rail industry has been working for many years to increase its rail-car fleet, there continues to be an ongoing shortage, primarily because the addition of new rail assets has not kept pace with the corresponding increase in automotive sales.

“The auto industry makes up only 3 percent of all rail car business, but the auto industry is growing at a much faster rate. The market continues to grow, so this will continue to remain a problem for the near future. Manufacturers’ plants in Mexico experienced some additional rail-car shortages and delays,” said Mark Donahue – team lead, fleet analytics for EMKAY.

The consensus of most observers in the fleet industry is that this situation will persist. “There continues to be rail-car shortages and unload issues at distribution facilities. The large volumes are proving to be a problem for distribution facilities. We have been advised numerous times of backlog that has built up, which sometimes takes weeks to clear,” said Howard Goldman, vehicle purchasing manager for Merchants Fleet Management.

Rail Industry Still Playing Catch-Up

Most railroads have increased their locomotive orders; however, the rail industry can replace only so many units per year due to production constraints. The country’s total locomotive production capacity is only 1,000 units per year, In addition, rail car production continues to lag behind demand.

“Although railroads have been investing in locomotives and new rail cars, hiring additional workers, and working to resolve bottlenecks within the network, we still saw rail-car shortages at certain Ford plants and ramps creating delays of 30 days or more,” said Jessica Krams, manager, vehicle order management for Wheels Inc.

A key reason for the shortage is the limited number of rail cars that can accommodate larger sized trucks and high-roof vans.

“Not only is there a rail-car shortage, there are also logistical delays in loading and unloading rail cars due to the higher volume of high-roof vehicles. Although the rail-car shortage is a known factor for OTD delays, in 2015 this was especially true due to not enough rail cars equipped to transport the high rooftop vans to and from the OEM, upfitter, and delivering dealer. In addition, some OEM manufacturing plants contribute to delays due to high-demand vehicle production or due to ramp-up time for re-tooling and supply of materials,” said Nick Erculiani, vice president of vehicle operations for Element Fleet Management.

This observation was echoed by Krams at Wheels. “The availability of bi-level and tri-level railcars, which are needed to ship medium- and high-roof Transit vans, was limited this year. This created a backlog of vans at the plant and caused delays in shipping to and from upfitters,” she said.

A similar observation was made by Partha Ghosh, director – supply chain management for ARI. “Over the course of the model-year, manufacturers were challenged by logistical issues when moving vehicles from the factory lot to the end destination, and this caused delays. Also, the increasing trend toward vans (especially the high-roof configurations) has led to an increased demand for uni-level rail cars, which are less efficient as measured by the number of vehicles that can be transported per rail car. The OEMs responded by expanding the ways in which they moved the vehicles, adding trucking in addition to rail, expanding truck-away programs, requesting more bi- and tri-level railcars, and prioritizing fleet/sold units over retail units,” said Ghosh.

Some assembly plants were more prone to OTD delays than others. “This year, there was an increase in rail car shortages for vehicles built out of Kansas City because Norfolk Southern had a shortage of dedicated rail cars used to move vehicles coming out of this location,” said Cindy Gomez, director of vehicle acquisition services for Donlen. “Ford has done a good job in communicating a plan to reduce delivery delays by contracting outside carriers.”

High-Roof Models are Exacerbating the Problem

For the past 16 years AF has conducted its OTD survey, the shortage of rail cars and rail congestion has figured prominently as key reasons for OTD delays. “Rail-related issues in transporting vehicles to market continue to challenge the industry. There are a limited number of rail cars and they are in high demand, especially the bi-level rail cars. The increase in demand for SUVs, trucks, and vans has further exacerbated this shortage,” said Elizabeth Kelly, director of operations, vehicle acquisition for LeasePlan USA.

Hopefully, OTD for the MY-2016 will fare better than it has for the past two model-years; however, I wouldn’t count on it. My forecast is for rail constraints to persist, and, if production volumes remain at an elevated level, it will be more of the same in MY-2016.

Market Trends

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